What type of risk involves the chance of loss only?

The correct answer involves the concept of pure risk, which is characterized by the potential for loss without any possibility of gain. In insurance terminology, pure risk is associated with situations where the outcomes are limited to either a loss or no loss at all. For example, risks such as fire, theft, or natural disasters fall under pure risk, as they may result in financial loss but do not present an opportunity for financial gain.

In contrast, speculative risk includes situations where there is a chance of both loss and gain, such as investing in stocks or starting a business. Financial risk typically pertains to challenges associated with financial markets or investment decisions, which also involve both potential gains and losses. Operational risk relates to risks arising from the internal processes, systems, or people within an organization, and it too can involve scenarios where both losses and gains are possible.

Understanding the characteristics of these different types of risk is essential for insurance professionals, as it helps in assessing insurable risks and developing appropriate coverage plans.